Finding great talent in the tech industry can be a challenge for startups, especially when they’re competing with the likes of Facebook, Twitter, and other Silicon Valley sweethearts.

Let’s face it: There is a misconception that good software engineers are hard to come by outside of the Bay Area tech hub. And if your company doesn’t have a Valley zip code to its name, some may argue that carries another stigma.

You can build a tech company anywhere, though. Finding great talent is all that matters. And for young companies working on a shoestring budget, getting the best bang for their buck is critical during the initial hiring sprees.

Internal recruiters typically earn between $75,000 and $150,000—but for that amount, they can hire dozens of engineers per year.

Hiring involves all kinds of trade-offs, including whether to use in-house recruiters or external headhunting firms. In my experience—at both small and large companies, using both internal recruiters and external hiring firms along the way—the best employees come from employing an internal recruiter. Here are some lessons I’ve learned along the way:

Use Your Network

Whether you’re a two- or three-person company, there’s really only one way to get your feet off the ground so that you can start growing your core team: Use your personal network. Look to your friends, family, members, former colleagues, even LinkedIn and Facebook contacts. It saves time and money, and I’ve found that referred candidates typically stay longer and are quicker to integrate with the broader team.

The challenge here, of course, is finding someone who is smart, but still different from you. I know that sounds counterintuitive, and it’s hard, because people who aren’t like you are probably the same ones that you’ll find annoying on some level. You want a team where people will challenge each others' opinions and ask different questions, though. Otherwise, you’ll end up with groupthink. You have to balance that annoyance factor with the incredible strength of a diverse team.

But once you’ve exhausted your personal resources, what do you do next? You build the rest of your team from the ground up. At this stage, I advise bringing in an in-house recruiter as soon as possible.

Internal vs. External Recruiting—Compare the Numbers

For my young and growing company, having a recruiter on hand has proven to be more cost-effective than using an outside hiring firm. Let’s take a look at the industry numbers:

Typically, recruiting agencies charge from 20-30% of each new hire’s salary, resulting in a cost of about $20K-$30K per hire.

Internal recruiters, meanwhile, typically earn a salary between $75,000 and $150,000—but for that amount, they can hire dozens of engineers per year.

While early-stage startups tend to avoid fixed costs in the hope of future flexibility, in this case and many others, the fixed cost is cheaper than hiring a third-party agency. For companies that plan to hire more than 20 employees in the coming year, using an internal recruiter could save them upwards of $500,000 over using a traditional search firm. That’s a significant amount of money for any startup.
First Step to Hiring a Recruiter: Set Them Up for Success

When hiring your internal recruiter, find someone from your network whom you’ve worked with and personally trust. In my case, I knew our internal recruiter when we were both working at Google. I had seen firsthand how well he built our team, and we worked together comfortably.

Once you’ve hired your recruiter, give them the tools they need to succeed at their job—everything from an applicant tracking system to a paid recruiter subscription to LinkedIn.

Then set them free. You hired them because you trust them and you like the quality of their work—so avoid micromanaging them, and let them do their job.

It’s All About the Cultural Fit

Third-party hiring agencies don’t work in your office, so they can’t get entrenched in your company and culture. From the outside, it’s harder to understand what kind of people you’re looking for and who would make a good fit.

Internal recruiters, however, look well beyond the resume. It’s as much a part of their job to weed out candidates as it is to make sure they acclimate to company culture.

Recruiters Get the Best Hires

In the end, internal recruiters get a greater share of top talent. The top one percent of candidates constantly gets contacted by recruiters—anywhere from 15 to 120 emails per week. But in most cases, top candidates don’t want to work with external hiring vendors.

Why? Because they believe that companies will offer them a higher salary if they aren’t also paying an additional recruiter’s fee.

And they're right: Hiring an in-house recruiter frees you up to pay top dollar for the top people. That, trust me, will help you compete with the Silicon Valley big boys.

—Douglas Merrill is CEO and founder of ZestFinance, a Los Angeles-based financial services technology company that uses big data to help make better credit underwriting decisions in order to provide credit alternatives to the underbanked. He was previously CIO and VP of engineering at Google.